St. Louis area bankers remain discouraged

Julie Stackhouse, senior vice president of the Federal Reserve Bank of St. Louis, hit a nerve last week when she said anemic economic growth and loan demand threaten future bank profits and invite risky behavior.

“Everything she says is correct,” said Rick Bagy, president of First National Bank of St. Louis. “We are seeing some banks taking more credit risk — and more predominantly seeing banks taking more interest-rate risk,” meaning low-interest rate loans with long terms, even seven- to 10-year loans.

First National increased its loans 3 percent to $1.08 billion year-over-year through Sept. 30. “With a weak economy, there are few lending opportunities and fierce competition for the few commercial loans available,” Bagy said.

Excluding three large banks that are based in St. Louis but conduct business nationally, total loans at 82 banks here are flat year-over-year, at $21.5 billion, Stackhouse noted.

“We continue to see significant downward pricing pressure on our loan portfolio as other banks, looking for volume, sacrifice pricing or underwriting to get new business,” Jim Wagner, chief executive of Parkside Financial Bank & Trust, said. Parkside’s loans increased 21 percent to $249 million as of Sept. 30, one of the few double-digit increases reported by local banks.

“Bankers have forgotten the lessons of the last credit downturn,” said Steve Marsh, chairman and CEO of Enterprise Bank & Trust, with $2.28 billion in loans, a 3 percent increase from the third quarter last year. “The industry seems to be pricing for growth and not for risk,” especially in commercial real estate.

Bankers also are discouraged about political and regulatory conditions. “Health care reform, higher taxes, and overly zealous government enforcement of existing laws, are just a few of the issues affecting business owners’ willingness to borrow money,” said Jim Regna, president and chief executive of Triad Bank, with $176 million in loans as of Sept. 30, a 9.5 percent increase from the same time last year. “Officials in Washington continue to be ineffective, lacking vision and leadership.”

Bankers agree with Stackhouse that shareholder pressure is mounting. “Shareholders and board members are all pushing for more growth to drive future earnings,” Wagner said.

Much of the improvement in profitability so far is because banks haven’t had to set aside as much money for bad loans. As that low-hanging fruit disappears, banks will increasingly compete on lower interest rates and longer terms, both risky. “Economic theory says the banks should actually be charging a higher interest rate if they loosen credit standards,” Wagner said. “What’s happening in St. Louis right now at many institutions is the opposite.”